Oil stumbles after debt limit extension

Let Me Take You On A Seaway!

A Seaway glitch and the house passage of a short term extension of the debt ceiling along with a reduction in the IMF growth forecast, helped oil have its biggest drop of this New Year.

The Seaway Pipeline that started to ease the glut of oil at Cushing, Oklahoma leading to a rebound in West Texas Intermediate prices as oil refiners took advantage of that new flow of crude. The release of that landlocked oil also brought in the Brent/ WTI spread by more than $6.00 a barrel. Now with movement cut to 175,000 barrels a day vs. the new level of 400,000 at the Jones Creek delivery point, fears that the glut of oil in Cushing might build again. Yesterday it was reported by the American Petroleum Institute that crude supply in Cushing fell by 463,000 barrels.

Still the Brent / WTI spread long term still looks like it has topped. With an expected increase in North Sea production and a hoped for approval of the Keystone Pipeline, the WTI should soon start to regain its stature as the world’s best benchmark.

Of course the break in oil is something readers of my energy report have been expecting. Back in December we said that oil was near the low end of the range and that we would see oil target this range. Yet as refiners get ready to go into maintenance, purchases of crude should dip as we start to move out of winter. Then get ready for the spring rebound as we get ready for summer! It’s closer than you think!

And besides, in China the HSBC's monthly purchasing managers' index, which gauges manufacturing activity, rose for the fifth consecutive month in January to 51.9, up from December's 51.5. So demand in China should also stay strong after their seasonal dip. Oil fell yesterday after the IMF lowered its world growth forecast to 3.5% from 3.6% in October.

The passage of the debt ceiling also gave the dollar a better outlook and helped break gold and oil. Grains fell as the outlook for rain improved in Argentina. Silver ETF holdings have increased by 5% from the start of the year.

About the Author

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

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